The progress made in Ghana’s banking industry post-Domestic Debt Exchange Programme (DDEP) is at risk of being reversed due to a consistent increase in Non-Performing Loans (NPLs).
The rate of bad loans has surged from 18.7 per cent to 24.1% as of June 2024, with only a slight improvement in credit to the private sector.
This increase means that loans customers are unable to repay to commercial banks have reached 24% on a year-on-year basis. This development poses a threat to the provision of credit to the private sector in the coming months due to elevated risks to the funding squeeze and the recovery of the banking industry.
Although there have been improvements in most core banking sector indicators, the industry faces a looming threat from deteriorating asset quality.
This situation arises at a time when banks in the country are consistently rebounding in profits and adhering to the Bank of Ghana’s recapitalisation plans.
The main concern is how the substantial bad loans will affect the profitability of banks and the overall stability of the banking sector in the long run.
Banks must therefore work to improve their poor credit underwriting systems to reverse the rising trend of high non-performing loans.
Regarding other indicators, private sector credit grew by 17.6 per cent in June 2024, compared to 16.1 per cent growth recorded for the same period in 2023 in nominal terms.
However, in real terms, the contraction in credit to the private sector moderated at 4.2 per cent compared to a contraction of 18.5 per cent recorded in June 2023.
The Capital Adequacy Ratio without regulatory reliefs improved to 10.6 per cent at the end of June this year from 7.4 per cent a year ago but remains below the pre-debt exchange levels. With reliefs, the ratio held steady at 14.3 per cent, providing a buffer against potential shocks.
